CRISIL Urges Govt. Policy Change to Revive Rupee

RAPAPORT... The Indian government needs to implement a series of policy changes to revive the ‎rupee, CRISIL said.‎ The research company stressed that the currency, which has lost about 25 percent in ‎value in the past year against the greenback, could appreciate back to around INR 50 to $1 by March 2013. The ‎rupee traded at INR 54.49 to $1 at press time on Wednesday after touching an all-time low of ‎‎INR 57.32 to $1 in June. ‎ CRISIL’s outlook depended on the initiation of some policy measures to strengthen the ‎currency, maintain steady economic growth, curb inflation and ease the current ‎account deficit, which may take affect due to the recent softening of crude and ‎commodity prices. These factors could combine to boost investments in India. CRISIL ‎also expects the Eurozone crisis to improve by the first quarter of 2013, which would ‎further stimulate a return of capital to India. ‎

Recent measures taken by the Reserve Bank of India, including raising the foreign ‎institutional investor investment limit in the government securities market and reducing ‎the residual maturity on such investments, could attract capital inflows in the medium ‎term, CRISIL stated. The decision to allow manufacturing and infrastructure companies ‎to avail external commercial borrowing to repay rupee loans in the domestic banking ‎system could also stimulate capital inflows in the short term.‎

CRISIL expects that the rupee will remain under pressure without the foreign capital ‎injections. The current account deficit may ease to 3.6 percent of gross domestic product ‎in 2013 from 4.2 percent in the previous year. CRISIL noted that if government ‎maintains its current domestic policy, coupled with prolonged Eurozone problems and ‎ongoing global economic weakness, the rupee may settle anywhere from INR 55 to $1 to INR 57 to $1 by ‎March next year.‎